SAFE INVESTMENTS FOR BEGINNERS
At the age of 11 years old, Warren Buffett started investing by making his first stock purchase. The future billionaire bought three shares of Oil Company Cities Service at about $38 per share and now his net worth is US$85.6 billion.
So do you think your money will grow in your savings account?
No, but why?
It won’t be able to beat the inflation rate, let’s understand by having an example: I have my account in SBI and it's having an interest rate of 2.70% p.a. and the rate of inflation in India is 5.03% as of now so, rather keeping my money in a savings account I can invest in many different types of assets like the stock market, mutual funds, real estate, gold, PPF, EPF, NPS, KVS and many more.
But why beat inflation?
Inflation is the rate at which the value of a currency is falling and consequently, the general level of prices for goods and services is rising let's understand it by taking an example: if you were in 2002 1L of petrol was at rupees 23 and in the current scenario, if you buy 1L it will cost you around 80rupees, so rather keeping your money in your piggy bank it’s always better to invest them.
From where should we start investing?
Let’s go in a hierarchical manner and the safest manner in which our money can beat the inflation rate (this is according to my perspective)
1. NPS (NATIONAL PENSION SYSTEM)
o The current interest rate on the National Pension Scheme (NPS) as of February 2020 ranges from 9% to 12% depending on the type of scheme and subscriber.
2. EPF (Employee provident fund)
o The Provident Fund (PF) regulator body in India has announced an 8.5 percent EPF interest rate for the EPF account holders for FY21.
3. PPF (Public provident fund)
o 7.1
4. ELSS
o 12% — 15%
The list doesn’t end here there is N number of ways by which we can do investment but the thing is what’s your risk profile?
Another thing we need to know is we should always link investment with a GOAL, it can be like buying a TV, CAR, PHONE, PS5, and so on
Now let’s suppose you are an aggressive investor and you need more returns which will be more than PPF or EPF and with less time frame (not less than 5 years) so, you need to look forward at mutual funds or stock market but in my opinion, the best way to start is a Mutual Funds.
There are two categories in mutual funds
1. Active
2. Passive
For beginners, we should go with a passive fund which is known as index funds. There are many different AMC (Asset Management Company’s) which can provide us index funds but how to get the best mutual funds, the simplest way to get is by comparing different mutual funds, so what I did was compared the funds by its
1. MEAN
2. STANDARD DEVIATION which varies from its mean if the fund like small-cap is more volatile then SD will be more and for the funds like large and debt, it will be less.
3. BETA should be less than its index so that it is said to have fewer gains when the index is high and less loss when the index is down.
4. ALPHA should be higher because it indicates that the fund is gaining more returns than its beta.
5. SHARP RATIO is returns generated per unit of risk taken should be higher than fund category (AVG RETURNS-RISK FREE INVESTMENT/SD)
6. EXPENSE RATIO is charged by AMC on daily basis.
7. SORTINO RATIO is a refined version of SHARP RATIO in which the downside deviation in SD is taken and it should be higher.
8. TURNOVER RATIO is buying and selling of the funds (buy or sell of securities/average aum)
Or you can just go to et money mobile app and select the index fund category and set the filter for VRR
